Houston Bankruptcy Judge Grants Summary Judgment for Insurers on Most Issues in Pollution-Exclusion Dispute
This month, Bankruptcy Judge Marvin Isgur provided helpful clarification on a common pollution-exclusion provision in Rodney Tow v. Gemini Ins. Co. (In re ATP Oil & Gas Corp.), 12-36187, 2016 WL 270049 (Bankr. S.D. Tex. Jan. 20, 2016). ATP Oil & Gas and Greystar Corporation had entered into a Master Service Agreement (MSA) through which Greystar agreed to provide labor and equipment to ATP to support ATP’s hydrocarbon operations. The MSA required Greystar to defend and indemnify ATP for claims involving injuries to Greystar’s employees working for ATP on ATP’s platform. As part of the MSA, ATP was named as an additional insured in the liability policy Gemini Insurance Company issued to Greystar. ATP also held its own liability policy issued by certain Lloyd’s Underwriters.
While ATP was in Chapter 11 Bankruptcy, an employee of Greystar was injured by chemical fumes while working on a platform owned and operated by ATP. Rodney Tow, the bankruptcy trustee, filed an adversary proceeding against Gemini and the Underwriters for refusing to defend against the employee’s lawsuit. Before Judge Isgur issued the present opinion, he had already denied Tow’s request for declaratory judgment that Gemini and the Underwriter’s owed ADT a duty to defend the lawsuit. The issue now turned on Gemini’s motion for summary judgment that it did not owe ADT a duty to defend or indemnify and the Underwriter’s motion that it owed no duty to indemnify. Both insurers also moved for summary judgment on Tow’s extra-contractual claims for violations of the Texas Insurance Code.
The insurers’ motions turned on the interpretation of the following pollution exclusion from the Gemini policy:
a. Bodily Injury or Property Damage arising out of or resulting from the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of Pollutants:
1. At or from any premises, site, or location which is or was at any time owned or occupied by, or rented or loaned to, any Insured. However, this Subparagraph (1) does not apply to:
i. …
ii. Bodily Injury or Property Damages for which You may be held liable, if You are a contractor and the owner or lessee of such premises,
site, or location has been added to Your policy as an Additional Insured with respect to Your ongoing operations performed for that Additional
Insured at that premises, site, or location; and such premises, site, or location is not and never was owned or occupied by, or rented or loaned
to, any Insured, other than that Additional Insured.
4. At or from any premises, site or location on which any Insured or any contractors or subcontractors working directly or indirectly on any Insured’s behalf are performing operations if the Pollutants are brought on or to the premises, site, or location in connection with such operations by such Insured, contractor, or subcontractor…
The court differentiated between subsections (1) and (4), concluding that (1) applied to releases of pollutions at or from premises owned or controlled by Greystar, whereas (4) excludes coverage if Greystar brought pollutants onto the platform and those pollutants were present in connection with Greystar’s operations there. Applying the Texas “Eight Corners” Doctrine to Gemini’s duty to defend, the Court found that the underlying lawsuit did not specify who brought pollutants onto the platform. Because an insurer owes a duty to defend if a complaint even potentially includes a covered claim, the Court held that Gemini could a duty to defend ADT because of the absence of specific allegations. The Court also noted that whether Gemini ultimately owed a duty to defend depended on resolution of a fact issue regarding the extent to which ADT or Gemini paid premiums on the policy, which affected enforceability of the indemnification provisions under Louisiana law. The court did not resolve that issue in this opinion.
The court next turned the Insurance Code claims against Gemini and the Underwriters. Relying on the principle that an insurer cannot be liable for statutory bad faith if it had a reasonable basis for denying coverage, it granted summary judgment for both insurers. It held that the Underwriters were reasonable because they conclusively owed no duty to defend, and that Gemini also had a reasonable basis because of its reasonable interpretation of the pollution exclusion, even though its interpretation may have been incorrect.
Finally, the Court made the rare finding that the Underwriters also owed no duty to indemnify as a matter of law. A court can generally not decide whether or not an insurer owes a duty to indemnify until the underlying lawsuit concludes. However, the Texas Supreme Court recognized an exception to this general rule in Farmers Texas Mutual Insurance Company v. Griffin, holding that a court can decide the indemnification issue before the case is adjudicated if it finds no duty to defend as a matter of law and the same reasons that negate the duty to defend would also negate a duty to indemnify. The Court found that the exception applied to the Underwriters because the chemical fumes that caused the employee’s injury qualified as pollution under the exclusion.